The Production or Intermediation Approach?: It Matters
The study builds upon the philosophical discrepancy between the production and intermediation approach to interpretation of banking business, but it brings up the issue of comparability of results that arise from application of both approaches in practical efficiency measurement of banking institutions. Its goal is to assess comparability or congruence of efficiency scores yielded by these two competitive approaches in a framework of data envelopment analysis (DEA), which is undertaken empirically in a case study of Slovak commercial banks for a period of 11 years from 2005 until 2015. The study finds that the main point of departure between the approaches that rests in treatment of deposits is an insuperable obstacle to comparability of their results, and that it does matter whether deposits are placed upon the input or output side of banking production. It is therefore safer to reconcile both approaches in a two-stage manner and to avoid black-box descriptions of banking production.
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